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European Insurance and Occupational Pensions Authority

2300

Q&A

Question ID: 2300

Regulation Reference: Other

Topic: Solvency Capital Requirement (SCR)

Article: EIOPA-BoS-20/749(5.23)

Status: Rejected

Date of submission: 27 May 2021

Question

In EIOPA-BoS-20/749 "OPINION ON THE 2020 REVIEW OF SOLVENCY II", it is proposed that the Loss Given Default on defaulted mortgage loans is floored at (36% * Loan), where Loan denotes the value of the loan. If a mortgage loan is undergoing foreclosure, it is likely to be marked down to a price in line with the expected recovery value of the secured property. In that case, by definition there should be no further loss incurred upon foreclosure. In that case, how could a further 36% LGD be incurred on the value of the loan?

Background of the question

Question on treatment of defaulted and forborne loans from 5.23 of OPINION ON THE 2020 REVIEW OF SOLVENCY II - EIOPA-BoS-20/749, 17 December 2020 https://www.eiopa.europa.eu/sites/default/files/solvency_ii/eiopa-bos-20-749-opinion-2020-review-solvency-ii.pdf

EIOPA answer

This question does not relate to the current legal framework.